IP: Patents, technology and economies

Over the last 15 years, United States’ patent applications have steadily increased, patent applications in Japan have significantly decreased, and applications in China have increased at an astonishing rate. Interestingly, these figures mirror global trends.

Coincidence? Perhaps.

However, it can be convincingly argued that a solid patent system and a consistent flow of patent applications directly relate to a country’s economic climate.

Let’s look at the numbers.

Japan, one of the poorest nations after World War II, grew in less than 40 years to become the world’s second-largest economic power, following only the U.S. Without a patent system that allowed patenting and licensing of postwar inventions, Japan could not have achieved this dramatic result. In the post-war era, Japan encouraged and promoted innovation.

As a result, the number of patent applications filed each year increased and matched gross national product almost stride-for-stride. In the mid-1980s, Japan had the largest number of patent applications in the world. One year, the Japanese Patent Office received 550,000 patent applications, amounting to 45 percent of the global total. This coincided with Japan’s economic high water mark.

More recently, Japanese patent applications in 2010 dropped significantly to approximately 350,000. Two factors in particular seem to have contributed to this decrease: First, Japanese courts were heading in an anti-patentee direction. The win rate for plaintiffs from 2002-2007 was around 20 percent. Second, to resolve problems of delays in the patent examination process, the Japanese Patent Office requested that Japan’s top innovators (its major corporations) actually reduce the number of patent applications they submit. Foreign entities followed suit. Interestingly, Japan’s economy seemed to decline in relative proportion to the drop in patent applications.

Now let’s contrast that with China’s dramatic economic growth. China started its patent system relatively late—in 1985. While the first decade saw a steady increase in patent applications (about 100,000 were filed in 1995), the last 15 years have seen massive growth. In 2010, close to 400,000 patent applications were filed in China.

Perhaps understanding the correlation, two factors support the growth of patent applications in China: First, the Chinese government, industry and private sector recognized the importance of patents and licensing in the global economy. Second, the Chinese government began to actively provide financial support for patent filings. Indeed, if a company achieves certain goals with respect to patent filings, it can be reimbursed between 50 and 100 percent of its filing expenses. That is, a company with a robust patenting program can (under certain circumstances) maintain its program without any related expenses.

The increased number of applications in China has resulted in more patents, which has led to more licensing transactions. In 2004, there were less than 100 licensing transactions. Today, there are more than 10,000 licensing transaction annually. These figures closely track China’s economic growth as well.

In the U.S., also tracking general economic trends, the number of patent applications has steadily grown from 400,000 in 1995 to 460,000 in 2010.

Of course, these figures do not mean that Chinese technology has exceeded or approached the quality and complexity of U.S. or Japanese technology. Nonetheless, the numbers are interesting, and help us analyze the correlation between strong intellectual property and a vibrant economy.

And if you doubt the numbers, you can rely on the old adage—“actions speak louder than words:”

China continues to give incentives for the filing of patent applications. At the current rate, China could exceed the U.S. in patent applications filed by 2013.

Japan, not surprisingly, is trying to reverse the downward trend with respect to patent filings, and has launched a number of programs targeted to revitalizing Japanese patent activities

The U.S. Patent and Trademark Office, under the leadership of David Kappos, has instituted a number of programs to relieve the backlog of traditional applications and expedite others through the system.

One thing is clear: more innovation means patents, and more patents means more opportunity to participate in the global economy. The numbers bear that out.